Commentary: Ruling to split Microsoft is final, but the outcome is not

The case against the software giant is far from over, as the appeals process could take as long as one or two more years.

January 11, 20024:47 PM PST

By Thomas Bittman and David Smith, Gartner Analysts

The Microsoft case is far from over, as the appeals process (expedited or not) could take as long as one or two more years.

The immediate concern to Microsoft is whether it will be able to stay the behavioral remedies during the appeals process. At least some of the (less irreversible) behavioral remedies could be implemented in 90 days.

Three of the behavioral restrictions would be particularly difficult to Microsoft. The first gives original equipment manufacturers (OEMs) more control over the layout and services available on the PC desktop. The
second restricts Microsoft's ability to create exclusive deals (e.g., via equity investments) with other companies to distribute, promote or use Microsoft platform software.

The third says that if Microsoft chooses to bundle any of its middleware with the OS, it must provide uninstall mechanisms to OEMs and consumers and must lower the price accordingly to OEMs.

The first restriction would change the PC landscape by empowering PC manufacturers to deliver customized PC solutions, with integrated software and services provided by the manufacturer and less evidence of Microsoft's
presence.

The third restriction could immediately change many of Microsoft's business strategies, in particular its Next Generation Windows Services (NGWS) strategy and the functionality being delivered in the next release of
Windows 2000. How early these remedies are ordered will have a direct effect on how soon the market will change.

If Microsoft eventually loses this case and is forced to split the company, Gartner believes it is likely that Microsoft will take advantage of the severe restrictions and limitations on the OS company to ensure that the
applications company is in the best position strategically.

The ruling requires the applications company to take ownership of middleware, development tools, Internet offerings and equity investments in addition to Office and BackOffice applications. With the Digital Dashboard,
Microsoft Servers, and as much middleware as Microsoft can untangle from Windows, the applications company is in an excellent position to create its own "platforms" and leverage the new trends toward the Internet and
software as a service (including its own "NGWS" strategy).

From a revenue standpoint, the two companies might appear similar, but from a growth and profitability standpoint, the applications company would be the dominant company by far. In fact, the applications company as defined,
without behavioral restrictions, could pick up the majority of Microsoft's strategies exactly where the old Microsoft left off.

A clear signal that Microsoft is preparing to improve the prospects of the applications company would be a shift in positioning of certain integrated middleware products, such as Active Directory and Microsoft Transaction
Server--if Active Directory were to be unbundled from Windows and bundled with non-OS products.

As Microsoft competes in many different markets against many different companies, no general statement can be made about this ruling's effect on competitors. For example, for those vendors which compete against Microsoft on the server side, such as Oracle, this ruling is generally positive.

From a customer perspective, a Microsoft split would have both positive and negative implications. From a positive standpoint, more innovation, competition, quality, user flexibility and choices will likely result. But
these benefits come with a price: uncertainty and less integration.

Enterprises should ignore claims by Microsoft or others that prices or total cost of ownership (TCO) will automatically increase. It is not a given that prices or TCO would rise or fall.